—Guide
Income Tax for Companies in India: 115BAA vs Normal Regime Explained
How Indian companies are taxed, the choice between the 22% regime under Section 115BAA and the normal regime, MAT, and how to decide.
Domestic companies in India choose between two ways of being taxed: a concessional rate with few deductions, or the normal rate with deductions and incentives. The choice affects tax for years. This guide explains both.
Note: this article covers the rules for FY 2025-26 under the Income-tax Act, 1961. The Income-tax Act, 2025 applies from tax year 2026-27, with renumbered provisions and some changes, so check the current position for later years.
The Normal Regime
- Tax at 25% for companies whose turnover in the relevant earlier year didn't exceed ₹400 crore, and 30% otherwise.
- Surcharge of 7% where income exceeds ₹1 crore and 12% above ₹10 crore, plus 4% health and education cess.
- All eligible deductions and incentives can be claimed.
- Minimum Alternate Tax (MAT) at 15% of book profit applies if it's higher than normal tax, with credit available in later years.
The Section 115BAA Regime
- Tax at 22%, plus a flat 10% surcharge and 4% cess — an effective rate of about 25.17%.
- Most deductions and incentives, like certain area-based and investment-linked deductions and additional depreciation, can't be claimed.
- MAT doesn't apply.
- Once chosen, the option can't be withdrawn for later years.
How to Decide
Section 115BAA is usually better for companies that:
- Don't have significant tax incentives to claim.
- Would otherwise pay MAT.
- Have no large MAT credit carried forward that they'd lose the use of.
The normal regime can still be better for companies claiming substantial deductions, or with large MAT credits to use. Because the choice is permanent, it's worth modelling several years.
Filing the Return
- Companies file ITR-6, verified with a digital signature of a director.
- Companies need a tax audit where turnover crosses the thresholds, and the return is due by 31 October in audit cases, or 30 November where a transfer pricing report is needed.
- The option for Section 115BAA is exercised by the return due date for the first year it's chosen.
Dividends
Dividends are taxed in the shareholders' hands at their applicable rates. The company deducts TDS on dividends paid above the threshold.
Getting Help
Think Filing models both regimes for companies, advises on the choice, and prepares and files ITR-6.